Hardening aviation insurance premiums can benefit the industry

Published

2018

Fri

31

Aug

Premiums are hardening in the aviation insurance industry as capacity, both locally and abroad, is contracting. Although this is not great on the pocket at first, it will ultimately benefit clients says Reon Wiese, an aviation insurance specialist at PSG Aviation, part of JSE-listed PSG Konsult.

Over the last 10 years, insurers have been adding aviation to their offerings and newer, smaller aviation brokerages have been offering cheap coverage. This resulted in a glut that drove premiums down to unprecedented and, in Wiese’s opinion, unsustainable levels.

Wiese, an aircraft owner and pilot himself, admits that low aviation insurance premiums are attractive, especially considering the overall cost of this pursuit. “But while low premiums are attractive, what’s more important is that your claim is ultimately settled as expected.”

In the last couple of years insurance companies began realising losses from their aviation lines. “This wasn’t as a result of increased claims, but rather due to premiums becoming unsustainably low, resulting in insurers losing money, says Wiese. Insuring a flight school with six or more aircraft for a minimal premium is good for the client in year one. However, claims will negate the premium with the first loss. Insurers then have no option but to substantially increase the next year’s premium, failing which the sustainability of the insurance line is threatened.

As a result, a number of aviation insurance carriers started offloading their aviation books. In Wiese’s view, this process is only halfway complete, particularly in the general aviation segment. In insurance parlance, airplanes with over 50 seats are classed as airlines, while those with less are classed as ‘general aviation’.

Because prices were driven so low, increases will have to be fairly substantial going forward. Wiese says that in both general aviation and airline insurance, prices have already gone up between 10% and 15% depending on the insurer. “In both segments we expect similar increases for the next five years to bring premiums back to levels where clients are getting good coverage from reliable underwriters who, in turn, are able to settle claims and still make an appropriate profit,” he says. To put the increases required to return to sustainable premium levels into perspective, it is worth noting that rates 10 years ago were more than triple compared to today’s levels.

Claims in aviation insurance can be massive. Therefore, it’s important that your insurance company has good credentials and your brokerage is able to service and support you to the expected standard.

“When smaller aviation insurers or brokers exit the market because they accepted the risk at an unsustainably low rate, they tend to leave behind unsettled claims with difficult reinsurance structures and no payment. Alternatively, the claims only get half-settled with the insurer refusing to pay the claim in full.” This is clearly neither to the benefit of clients, nor the aviation industry.

South African law requires advisers to first try to place a policy in the local market. There are now only a handful of South African insurance companies that provide aviation insurance. PSG supports solid local companies with the risk they are comfortable in covering. Bigger risks are placed through a combination of syndicates within Lloyds of London and/or A-rated international insurers. “Risk sharing is a vital feature of aviation insurance,” Wiese says.

PSG Aviation is one of the biggest aviation insurance brokerages in South Africa, and the only one that offers a full-service offering across all classes of short-term insurance (commercial and personal lines).

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